University of Perpetual Help System DALTA

Las Piñas Campus

RESEARCH IN GOVERNMENT ACCOUNTING

ACCOUNTING SYSTEM OF

PHILIPPINE RED CROSS

(Non-Government Organization)

Presented to:

Mr. Ryan Jay Carasco

Anyayahan, Angela Joy L.

Bandula, Froilan

Cacho, Erlinda E.

Pascual, Mark

Yanguas, Lhean May M.

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Las Piñas Campus

INTRODUCTION

Non-governmental organizations, commonly referred to as NGOs are

usually non-profit and sometimes international organizations independent
of governments and international governmental organizations (though
often funded by governments) that are active in humanitarian,
educational, health care, public policy, social, human rights,
environmental, and other areas to affect changes according to their
objectives. NGO’s are usually funded through donations or run primarily
by volunteers. One of those several non-government organization is the
Philippine Red Cross.

Born officially in 1947, but with roots that traces back to the
revolutionary days, the Philippine Red Cross has truly become the
premier humanitarian organization in the country, committed to provide
quality life-saving services that protect the life and dignity especially of
indigent Filipinos in vulnerable situations.

The Philippine Red Cross is the story of men and women from all
walks of life who have dedicated themselves to the service of humanity. It
is the tale of hundreds of thousands of ordinary people who devoted their
time and resources to help the poorest of the poor. Professionally trained
and truly compassionate, these men and women are ready to lend a
helping hand to those in need – whoever, whenever and wherever they
may be. At present, the Philippine Red Cross provides six major
services: Blood Services, Disaster Management Services, Safety

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Services, Health Services, Social Services, Red Cross Youth and

Volunteer Services.

College of Business Administration and Accountancy

 University of Perpetual Help System DALTA
Las Piñas Campus

PHILIPPINE RED CROSS: ACCOUNTING SYSTEM

College of Business Administration and Accountancy

 University of Perpetual Help System DALTA
Las Piñas Campus

College of Business Administration and Accountancy

 University of Perpetual Help System DALTA
Las Piñas Campus

College of Business Administration and Accountancy

 University of Perpetual Help System DALTA
Las Piñas Campus

Basis of Preparation

The financial statements of Philippine Red Cross have been

prepared on a modified cash basis of accounting. Under this method,
income are recognized when received rather than when earned, and
expenses are recognized when paid rather than when the related
obligation is incurred. The modifications to the cash basis of accounting,
which are patterned with the relevant requirements of Philippine Financial
Reporting Standards, result from management’s decision to:
Recognize advances and other receivable from third parties,
chapters, suppliers and partner national societies at amortized cost, less
any allowance for impairment losses;
Recognize advances to chapters’ operations and employees
pertaining cash advances by the Organization in the implementation of
the chapters’ operations at cost, less any allowance for impairment
losses;
Recognize materials and supplies pertaining to merchandise and
souvenir items, unused membership cards, reagents, blood supplies and
blood bags remaining as at year-end at cost;
Recognize available-for-sale (AFS) investments pertaining to
investments in treasury bonds at fair value;
Recognize accounts payable and other liabilities to chapters, partner
national societies, government, employees and third parties at cost; and
Recognize property and equipment, depreciated using the straight-
line method based on the estimated useful lives of the assets.
The Organization is comprised of the National Headquarters (NHQ),

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Chapters and Special Projects funds and prepares the consolidated

financial position and results of and financial performance during the
year. However, Chapters’ balances are not included in the statement of
financial position due to non-availability of balances except for 24
Chapters (Class A and B) in 2015.
Proceeds of fund campaign contributions of the Organization’s
chapters are remitted to NHQ and the corresponding actual budgetary
expenditures are reflected and accordingly accounted for under the
general fund.
Proceeds from fund campaign contributions, special donations to
PRC, donations for disaster relief operations, blood processing fees,
donations from Partner National Societies, membership contributions and
income from other sources are recognized as income when received.
Donations in kind from foreign and local sources are not recognized
in the financial statements as there is no adequate data to properly value
the donations in kind. However, these are officially acknowledged by the
Organization and the receipts and distributions are accounted for in a
schedule.
The financial statements of the Organization have been prepared on
the historical cost basis of accounting except for AFS investments which
are measured at fair value.
The financial statements are presented in Philippine Peso, which is
also the Organization’s functional currency. All amounts are rounded off
to the nearest peso, except when otherwise indicated.

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Summary of Accounting Policies

Cash and Cash Equivalents Cash includes cash on hand and cash in
banks. They are reported at their face value.
The Organization recognizes a financial asset or a financial liability in
the statement of assets, liabilities and fund balances when it becomes a
party to the contractual provisions of the instrument. Purchases or sales
of financial assets that require delivery of assets within the time frame
established by regulation or convention in the market place are
recognized on the settlement date.
The initial measurement of financial instruments, except those
financial assets and liabilities at fair value through profit or loss (FVPL),
includes transaction costs.
Financial instruments are classified as liability or equity in
accordance with the substance of the contractual arrangement. Interest,
gains and losses relating to a financial instrument or a component that is
a financial liability are reported as expense or income.
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. They
are not entered into with the intention of immediate or short-term resale
and are not designated as AFS investments or financial asset at FVPL.
Loans and receivables are carried at cost or amortized cost, less any
allowance for impairment losses.
AFS investments are those which are designated as such or do not
qualify to be classified as financial assets at FVPL, HTM investments or
loans and receivables. They are purchased and held indefinitely and may
be sold in response to liquidity requirements or changes in market

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conditions.
Other financial liabilities which pertains to non-derivative financial
liabilities that are not held for trading or not designated as at FVPL at the
inception of the liability. They are initially measured at fair value plus
transaction costs. Subsequently, these are measured at amortized cost,
taking into account the impact of applying the effective interest method of
amortization (or accretion) for any related premium, discount and any
directly attributable transaction costs.
The Organization assesses at each reporting date whether there is
objective evidence that a financial asset or group of financial assets is
impaired.
The Organization first assesses whether an objective evidence of
impairment exists individually for financial assets that are individually
significant, and individually or collectively for financial assets that are not
individually significant. If there is objective evidence that an impairment
loss on loans and receivables carried at amortized cost has been
incurred, the amount of the loss is measured as a difference between the
asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate (i.e., the
effective interest rate computed at initial recognition). The carrying
amount of the asset shall be reduced through the use of an allowance
account, and the amount of the loss shall be recognized in the profit or
loss.
A financial asset (or, where applicable, a part of a financial asset or
part of a group of similar financial assets) is derecognized when:

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the rights to receive cash flows from the asset have expired; the
Organization retains the right to receive cash flows from the asset, but
has assumed an obligation to pay them in full without material delay to a
third party under a “pass-through” arrangement; or the Organization
has transferred its rights to receive cash flows from the asset and either:
(a) has transferred substantially all the risks and rewards of the asset; or
(b) has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
A financial liability is derecognized when the obligation under the
liability is discharged or cancelled or has expired.
All assets and liabilities for which fair value is measured or disclosed
in the financial statements are categorized within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for
identical assets or liabilities; Level 2 - Valuation techniques for which the
lowest level input that is significant to the fair value measurement is
directly or indirectly observable; and, Level 3 - Valuation techniques for
which the lowest level input that is significant to the fair value
measurement is unobservable.
For assets and liabilities that are recognized in the financial
statements on a recurring basis, the Organization determines whether
transfers have occurred between levels in the hierarchy by re-assessing
categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Organization has

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determined classes of assets and liabilities on the basis of the nature,

characteristics and risks of the asset or liability and the level of the fair
value hierarchy as explained above.
Materials and supplies consist of unused membership cards,
reagents, blood supplies, blood bags, souvenir items and other
merchandise which are measured at cost. The cost of materials and
supplies is based on the weighted average cost method.
Property and equipment are carried at cost less accumulated
depreciation and impairment loss, if any.
Depreciation is computed using the straight-line method based on
the estimated useful lives of the assets.
Construction in progress is stated at cost. This includes cost of
construction and other direct costs.
Intangible Assets Intangible assets acquired by the Organization
which have finite useful lives are measured at cost less accumulated
amortizations and accumulated impairment losses, if any. Intangible
assets are amortized over the estimated useful lives of 3-5 years and are
assessed for impairment whenever there is an indication that the assets
may be impaired.
Gains or losses arising from derecognition of an intangible asset are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statements of
comprehensive income when the asset is derecognized.
The carrying amounts of the Organization’s nonfinancial assets
which consist of materials and supplies, property and equipment and
intangible assets are reviewed at each reporting date to determine

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whether there is any indication of impairment. If any such indication

exists, then the asset’s recoverable amount is estimated.
General fund and Special projects General fund includes all assets
of the Organization that are available for general use and not restricted
for specific purposes. Special projects are projects intended for specific
purpose that are funded by Partner National Societies and implemented
by the Organization.
Disaster relief operations is intended to be used for calamities and
relief operations of the Organization.
Restricted fund comes from the donations that require the funds be
used for a specific purpose. It is also for the future needs of the
Organization and fulfillment of its purpose through providing various
programs as authorized by the Board and within the purpose indicated by
the donor.
Income from the following sources are recognized upon receipt of
cash: Donations for national blood program, Fund campaign
contributions, Disaster relief operations, Special donations to PRC,
Project Management Fee, Miscellaneous income except for interest, rent
and unrealized foreign exchange gains and Fund generation except for
membership and registration fees.
Donations of property and equipment are recognized as assets and
income in nominal amount when received. Gain on sale of property and
equipment is recognized as income under “Miscellaneous income” when
the proceeds of sale exceeds the carrying amount on disposal.
On the other hand, income from membership and registration fees under
“Fund generation”, and interest, rent and unrealized foreign exchange

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gains under “Miscellaneous income” are recognized when earned

regardless of when collected.
Operating expenses include costs of administering the operation of
the Organization and costs incurred to deliver humanitarian services
while administrative expenses are associated with the cost incurred for
the general administration of the Organization. All of these expenses
except salaries, wages and benefits, utilities and outside services are
recognized in profit or loss when disbursed.
On the other hand, expenses from salaries, wages and benefits, utilities
and outside services are recognized when incurred regardless of when
disbursed.
The determination of whether an arrangement is, or contains, a lease
is based on the substance of the arrangement at inception date of
whether the fulfillment of the arrangement is dependent on the use of a
specific asset or assets or the arrangement conveys a right to use the
asset, even if that right is not explicitly specified in an arrangement.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Any
initial direct costs incurred in negotiating an operating lease are added to
the carrying amount of the leased asset and recognized over the lease
term on the same bases as rent income.
Rent income is recognized over the lease term on a straight-line
basis and is recognized under “Miscellaneous Income” in the statement
of comprehensive income.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating leases.

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Operating lease payments are recognized as an expense in statement of

comprehensive income when paid.
Employee benefits are expensed as the related service is provided. A
liability is recognized for the amount expected to be paid if the
Organization has a present legal or constructive obligation to pay this
amount as a result of past service provided by the employee and the
obligation can be estimated reliably.

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